Certain Welded Carbon Steel Pipes and Tubes From Turkey; Preliminary Results of Countervailing Duty Administrative Review

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

The Department of Commerce (the Department) is conducting an administrative review of the countervailing duty order on certain welded carbon steel pipes and tubes from Turkey for the period January 1, 1998 through December 31, 1998. For information on the net subsidy for the reviewed companies, as well as for all non-reviewed companies, see the Preliminary Results of Review section of this notice. If the final results remain the same as these preliminary results of administrative review, we will instruct the U.S. Customs Service to assess countervailing duties as detailed in the Preliminary Results of Review section of this notice. Interested parties are invited to comment on these preliminary results. (See Public Comment section of this notice.)

EFFECTIVE DATE:

April 6, 2000.

FOR FURTHER INFORMATION CONTACT:

Michael Grossman or Stephanie Moore, Office of AD/CVD Enforcement VI, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 7, 1986, the Department published in the Federal Register (51 FR 7984) the countervailing duty order on certain welded carbon steel pipes and tubes from Turkey. On March 9, 1999, the Department published a notice of “Opportunity to Request Administrative Review” (64 FR 11439) of this countervailing duty order. We received a timely request to conduct a review by Borusan Birlesik Boru Fabrikalari A.S. (BBBF). We initiated the review covering the period January 1, 1998 through December 31, 1998 on April 30, 1999 (64 FR 23269).

In accordance with 19 CFR 351.213(b), this review covers only those producers or exporters of the subject merchandise for which a review was specifically requested. Accordingly, this review covers BBBF and Borusan Ihracat Ithalat ve Dagitim A.S. (Dagitim), an affiliated trading company that exports BBBF produced subject merchandise to the United States (see Treatment of Trading Company section below). This review also covers 21 programs.

On November 10, 1999, the Department extended the period for completion of the preliminary results pursuant to section 751(a)(3)(A) of the Tariff Act of 1930, as amended (the Act). See Certain Welded Carbon Steel Pipes and Tubes from Turkey: Extension of Preliminary Results of Countervailing Duty Administrative Review (64 FR 61276). The deadline for the final results of this review is no later than 120 days from the date on which these preliminary results are published in the Federal Register.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions of the Act, as amended by the Uruguay Round Agreements Act (URAA) effective January 1, 1995. In addition, unless otherwise indicated, all citations to the Department's regulations reference 19 CFR part 351 (1999).

Scope of the Review

Imports covered by this review are shipments from Turkey of certain welded carbon steel pipe and tube, having an outside diameter of 0.375 inch or more, but not more than 16 inches, of any wall thickness. These products, commonly referred to in the industry as standard pipe and tube or structural tubing, are produced to various American Society for Testing and Materials (ASTM) specifications, most notably A-53, A-120, A-135, A-500, or A-501. These products are classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) as item number 7306.30.10. The HTSUS item numbers are provided for convenience and Customs purposes. The written descriptions remain dispositive.

Organizational Background

The Borusan Group includes the following companies involved in the production and/or export of the subject merchandise: BBBF, Dagitim, Kartal Boru Ticaret ve Sanayi (Kartal Boru), and Mannesmann Boru A.S. (Mannesmann Boru) (collectively, “Borusan Group”). BBBF manufactured steel pipes and tubes that were both sold in Turkey and exported to the United States during the period of review (POR). Exports are carried out through Dagitim, which handles the international marketing of goods produced by BBBF and other Borusan Group companies. Kartal Boru manufactures standard pipe products sold mainly domestically; it did not export standard pipe to the United States. On September 11, 1998, Borusan Holding purchased a stake in Mannesmann-Sumerbank Boru Endustrisi T.A.S. On December 22, 1998, Borusan Holding partnered with Mannesmannrohren-Werke A.G. to establish a joint venture named Borusan Mannesmann Boru Yatirim Holding (Borusan Mannesmann), which itself purchased a majority of BBBF's shares on the same day. Also on December 22, 1998, Borusan Mannesmann purchased a majority of Mannesmann-Sumerbank Boru Endustrisi T.A.S. Mannesmann Boru Endustrisi T.A.S. was renamed Mannesmann Boru A.S. (Mannesmann Boru) in early 1999. Mannesmann Boru did not export subject merchandise to the United States during the POR.

Treatment of Trading Company

During the POR, BBBF exported subject merchandise to the United States through Dagitim, a trading company. Dagitim is affiliated with BBBF within the meaning of section 771(33)(F) of the Act since both companies are under common ownership. The responses provided by the Borusan Group indicated that, during the POR, Dagitim did not receive any countervailable subsidies. A questionnaire response was required from the trading company because the subject merchandise may be subsidized by means of subsidies provided to both the producer and the exporter. All subsidies conferred on the production and exportation of subject merchandise benefit the subject merchandise even if it is exported to the United States by an unaffiliated trading company rather than by the producer itself. Therefore, the Department calculates countervailable subsidy rates on the subject merchandise by cumulating subsidies provided to the producer, with those provided to the exporter. See 19 CFR 351.525.

Under section 351.107 of the Department's Regulations, when the subject merchandise is exported to the United States by a company that is not the producer of the merchandise, the Department may establish a “combination” rate for each combination of an exporter and supplying producer. However, as noted in the “Explanation of the Final Rules” (the Preamble to the Department's Regulations), there may be situations in which it is not appropriate or practicable to establish combination rates when the subject merchandise is exported by a trading company. In such situations, the Department will make exceptions to its combination rate approach on a case-by-case basis. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296; 27303 (May 19, 1997).

In this review, we preliminarily determine that it is not appropriate to establish combination rates. This preliminary determination is based on the fact that the subsidies conferred upon the subject merchandise were received by the producer only. Therefore, combination rates would serve no practical purpose because the calculated subsidy rate for BBBF and Dagitim would effectively be the same rate. For these reasons we are not calculating combination rates in this review. Instead, we have only calculated one rate for BBBF, the producer of the subject merchandise, which will also be the rate for Dagitim.

Calculation of Benefits

Despite a persistently high rate of inflation in Turkey, Turkish companies do not index any of the figures (other than fixed assets) in their financial statements to account for inflation. During the POR, the inflation rate in Turkey was 41 percent, as published in the 1998 Quarterly Bulletin by the Central Bank of Turkey. Indexing the benefit and the sales figures will neutralize any potential distortion in our subsidy calculations caused by high inflation and the timing of the receipt of the subsidy.

Therefore, to calculate the ad valorem subsidy rates, we indexed the benefits (numerator) in the month of receipt and indexed the monthly sales (denominator) for each program, as we did in Certain Welded Carbon Steel Pipes and Tubes and Welded Carbon Steel Line Pipe from Turkey; Final Results of Countervailing Duty Administrative Reviews, 64 FR 44496 (August 16, 1999) (1997 Final Results). See, for discussion, Certain Welded Carbon Steel Pipes and Tubes and Welded Carbon Steel Line Pipe from Turkey; Preliminary Results of Countervailing Duty Administrative Reviews, 64 FR 16924 (April 7, 1999) (1997 Preliminary Results). We indexed the sales values and the benefits using the Wholesale Price Index (WPI) for manufacturing companies in 1998, as reported by the Central Bank of Turkey.

The subsidies which we preliminarily determine to have provided benefits during the POR were an export subsidy and an import substitution subsidy. Since BBBF is the only company from which subject merchandise was exported, the export subsidy is attributable solely to BBBF's export sales. Similarly, since the benefit from the import substitution subsidy was tied to BBBF's purchase of equipment used in the production of subject merchandise, the benefit from this subsidy is attributable solely to BBBF's sales of subject merchandise.

Consolidation of BBBF and Mannesmann Boru under the Borusan Group “umbrella” occurred late in the POR. Additionally, only BBBF's production of subject merchandise was exported to the United States during the POR. Therefore, for purposes of this administrative review, we are not addressing whether BBBF and Mannesmann need to be collapsed. However, we will reexamine this issue in a future administrative review should one be requested.

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Pre-Shipment Export Credit

The Export Credit Bank of Turkey provides short-term pre-shipment export loans to exporters through intermediary commercial banks. The program is designed to support export-related industries. Loans are made to exporters who commit to export within a specified period of time. Generally, loans are extended for a period of up to 180 days, and cover up to 100 percent of the FOB export value. These loans are denominated in Turkish Lira (TL) and repaid in TL. The interest rate charged on these pre-shipment loans is established by the Turk Eximbank and is tied to the Central Bank's rediscount rate. In several previous determinations, including the 1997 Final Results, and the Final Affirmative Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR 30366 (June 14, 1996) (Pasta from Turkey), the Department found this program to be countervailable because receipt of the loans is contingent upon export performance and the interest rates paid on these loans is less than the amount the recipient would pay on comparable commercial loans.

In the 1997 Final Results, we found these loans to be untied and available for exported merchandise because the exporter has to only show that an export has taken place and provide the foreign currency exchange receipts from the commercial bank to close out the loan with Turk Eximbank. Because the loans are not specifically tied to a particular destination at the time of approval, we determined that the pre-shipment loan program is an untied export loan program. See 64 FR 44496, 44497. In this review, no new information or evidence of changed circumstances has been submitted to warrant reconsideration of the Department's prior findings.

Pursuant to section 771(5)(E)(ii) of the Act, a benefit shall be treated as conferred “in the case of a loan, if there is a difference between the amount the recipient of the loan pays on the loan and the amount the recipient would pay on a comparable commercial loan that the recipient could actually obtain on the market.” To calculate the rate the recipient would pay on a comparable commercial loan that could actually be obtained by it (i.e., the benchmark interest rate), we are using company-specific interest rates on comparable commercial loans for all pre-shipment loans that were taken out by BBBF in 1997 and 1998, and repaid in 1998, with the exception of two pre-shipment export loans taken out in the third quarter of 1997, as discussed below. The rates on commercial loans provided to BBBF, which we have used as benchmarks, include the following customary fees: Bank Insurance and Services Tax (BIST), which is equal to five percent of the interest amount paid; the Resource Utilization Support Fund (RUSF) fee, equal to six percent of the interest paid; and a stamp tax equal to 0.6 percent of the principal.

In addition, because the Department continues to consider Turkey to have high inflation, we also preliminarily determine that it is appropriate to use quarterly average short-term interest rates where available, since BBBF pays interest quarterly on its short-term borrowings. Therefore, we have used as our benchmark interest rates, for all but two pre-shipment export loans, the quarterly rates paid on short-term commercial financing contracted by BBBF. This is consistent with the Department's practice in Certain Welded Carbon Steel Pipe and Tube and Welded Carbon Steel Line Pipe From Turkey; Final Results and Partial Rescission of Countervailing Duty Administrative Reviews, 63 FR 18885 (April 16, 1998) (1996 Final Results). See, for discussion, Certain Welded Carbon Steel Pipes and Tubes and Welded Carbon Steel Line Pipe From Turkey; Preliminary Results and Partial Recission of Countervailing Duty Administrative Reviews, 62 FR 64808 (December 9, 1997) (1996 Preliminary Results).

As mentioned, two pre-shipment export loans were contracted by BBBF during the third quarter of 1997. Since we do not have company-specific loan information for the third quarter of 1997 to use as a benchmark, we are using a simple average of the weekly short-term interest rates for Turkey for July through September, 1997, as published in The Economist. Use of The Economist for comprising a benchmark is consistent with the 1997 Final Results, (see Preliminary Results, for discussion, 64 FR 16924, 16926). Using these benchmark rates, we continue to find these pre-shipment export loans countervailable because the interest rate charged is less than the rate for comparable commercial loans that the company could actually obtain in the market. Therefore, this program provides both a financial contribution under section 771(5)(D)(i), and confers a benefit under section 771(5)(E)(ii) of the Act.

Resolution No. 94/5782, Article 4, effective June 13, 1994, allows for the exemption of certain fees that are normally charged on loans, provided that the loans are used in financing exportation and other foreign exchange earning activities. For pre-shipment loans, which are denominated in TL, the fees that are exempted are the customary BIST, RUSF, and the stamp tax, all of which have been described above. The Department's current practice is normally to compare effective interest rates rather than nominal rates. “Effective” interest rates are intended to take account of the actual cost of the loan, including the amount of any fees, commissions, compensating balances, government charges or penalties paid in addition to the “nominal” interest rate. We have added the exempted customary banking fees to the benchmark interest rates, including those rates taken from The Economist, because we have previously determined exempted fees to be countervailable. See e.g., Certain Iron-Metal Castings from India: Final Results of Countervailing Duty Administrative Review, 60 FR 44843 (August 29, 1995) (Indian Castings), and 1997 Preliminary Results, 64 FR 16924, 16926.

To determine the benefit, we calculated the countervailable subsidy as the difference between actual interest paid on pre-shipment loans during the POR and the interest that would have been paid using the benchmark interest rates. This difference was indexed for inflation (as described above), and the result divided by the company's total export sales, which we also indexed for inflation. On this basis, we preliminarily determine the countervailable subsidy under this program to be 0.12 percent ad valorem for BBBF.

2. VAT Support Program (Incentive Premium on Domestically Obtained Goods)

The General Incentives Program (GIP) was established by the Government of the Republic of Turkey (GRT) and is designed to increase investment in Turkey and to expand the Turkish economy. Companies can apply to the GRT's Undersecretariat of the Treasury for investment encouragement certificates under the GIP, which entitle holders to specific benefits relating to the investment project. Companies holding investment certificates under the GIP have been eligible for the VAT Support Program, formerly known as the Incentive Premium on Domestically Obtained Goods, which provided a rebate of the 15 percent value added tax (VAT) paid on domestically-sourced machinery and equipment. In 1996, the GRT modified this program by providing an additional 10 percent of the rebated VAT amount to eligible companies, as a further investment incentive. Until August 1, 1998, imported machinery and equipment were subject to the VAT, but were not eligible for the rebate. However, General Comunique No. 69, dated August 14, 1998, states that as of August 1, 1998, all machinery and equipment, whether imported or locally-sourced, will be eligible for the VAT rebate when an investment certificate issued on or after August 1, 1998 is used for the purchase.

The Department determined in Pasta from Turkey (see 61 FR 30366, 30369), and in the 1996 Final Results (see 1996 Preliminary Results for discussion, 62 FR 64808, 64811), that these VAT rebates are countervailable subsidies within the meaning of section 771(5)(D)(ii) of the Act because the rebates constitute revenue foregone by the GRT, and they provide a benefit in the amount of the VAT savings to the company. In this current review, we preliminarily determine that the savings is not only the VAT, but the additional 10 percent of the VAT that is added on to the rebate. Also, BBBF's benefits under this program are specific under section 771(5A)(C) because BBBF's receipt of benefits was contingent upon the use of domestic goods rather than imported goods during the POR. While the program was changed as of August 1, 1998 to include VAT exemptions on imported machinery and equipment, BBBF's investment certificates were issued prior to that date, therefore BBBF continued to receive the VAT rebate plus 10 percent only for its purchases of domestically-sourced machinery and equipment. Therefore, for purposes of this administrative review, we continue to find benefits under this program specific. Further, the Department determined that the benefits under the VAT Support Program are “recurring,” because once a company has received an investment incentive certificate it becomes eligible for the VAT Support Program benefits. The receipt of benefits is automatic; companies do not have to apply for new investment incentive certificates each year.

BBBF received six separate VAT rebates, plus 10 percent, under two different investment certificates as part of this program during the POR, for machinery and equipment purchases associated solely with the production of subject merchandise. In order to determine the net countervailable subsidy rate, we divided the amount received (indexed for inflation) by the company's sales of subject merchandise during the POR (indexed for inflation). On this basis, we preliminarily determine the net countervailable subsidy under this program to be 0.08 percent ad valorem for BBBF.

II. Program Preliminarily Determined To Be Not Countervailable

Special Importance Sector Under Investment Allowances

During the POR, BBBF was entitled to receive a 100 percent investment allowance on its corporate tax return because it modernized an existing facility under an investment certificate issued under the GIP. According to the GIP, modernization is considered to be a “special importance sector” investment. The special importance sector is a provision under the Investment Allowance program that allows companies a 100 percent corporate tax deduction of their fixed investment, regardless of the region in which the investment is made.

In order to determine whether the “special importance sector” benefits are specific, in law or in fact, to an enterprise or industry, as per section 771(5A)(D), we examined the following:

1. Whether the enabling legislation expressly limits access to the subsidy to an enterprise or industry;

2. Whether the actual recipients of the subsidy, whether considered on an enterprise or industry basis, are limited in number;

3. Whether an enterprise or industry is a predominant user of the subsidy;

4. Whether an enterprise or industry receives a disproportionately large amount of the subsidy; and

5. The manner in which the authority providing the subsidy has exercised discretion in the decision to grant the subsidy indicates that an enterprise or industry is favored over others.

An analysis of the first factor shows that the enabling legislation does not expressly limit access to an enterprise or industry; therefore, the subsidy is not de jure specific (specific as a matter of law).

In determining whether this program is specific in practice (de facto specificity), we examined information supplied by the GRT, including a breakdown of the number of companies within each industry and region that received special importance sector investment certificates in 1996, the year in which the GIP certificate issued to BBBF was used to claim the benefit on the tax return filed during the POR. This data shows that more than 4,500 certificates were issued to different companies in numerous and varied industries and regions throughout Turkey. The data also shows that the iron and steel industry was not a predominant user, nor has it received a disproportionate share of the benefits. Therefore, we preliminarily determine that this program is not specific, and therefore, is not countervailable.

III. Programs Preliminarily Determined To Be Not Used

We examined the following programs and preliminarily determined that the producers and/or exporters of the subject merchandise did not apply for or receive benefits under these programs during the POR:

A. Freight Program

B. Foreign Exchange Loan Assistance

C. Resource Utilization Support Fund

D. State Aid for Exports Program

E. Advance Refunds of Tax Savings

F. Export Credit Through the Foreign Trade Corporate Companies Rediscount Credit Facility (Eximbank)

G. Past Performance Related Foreign Currency Export Loans (Eximbank)

H. Export Credit Insurance (Eximbank)

I. Subsidized Turkish Lira Credit Facilities

J. Subsidized Credit for Proportion of Fixed Expenditures

K. Fund Based Credit

L. Investment Allowances (in excess of 30 percent minimum)

M. Resource Utilization Support Premium (RUSP)

N. Deduction from Taxable Income for Export Revenues

O. Regional Subsidies

1. Additional Refunds of VAT (VAT + 10 percent)

2. Postponement of VAT on Imported Goods

3. Land Allocation (GIP)

4. Taxes, Fees (Duties), Charge Exemption (GIP)

Preliminary Results of Review

In accordance with section 777A(e)(1) of the Act, we calculated an individual ad valorem subsidy rate for each producer/exporter subject to this administrative review. For the period January 1, 1998 through December 31, 1998, we preliminarily determine the net subsidy for BBBF and Dagitim to be 0.20 percent ad valorem, which is de minimis.

As provided for in 19 CFR 351.106(c)(1), any rate less than 0.5 percent ad valorem in an administrative review is de minimis. Accordingly, no countervailing duties will be assessed. If the final results of this review remain the same as these preliminary results, the Department intends to instruct the U.S. Customs Service to liquidate, without regard to countervailing duties, shipments of the subject merchandise from BBBF and Dagitim exported on or after January 1, 1998, and on or before December 31, 1998. Also, the cash deposit required for these companies will be zero.

Because the URAA replaced the general rule in favor of a country-wide rate with a general rule in favor of individual rates for investigated and reviewed companies, the procedures for establishing countervailing duty rates, including those for non-reviewed companies, are now essentially the same as those in antidumping cases, except as provided for in section 777A(e)(2)(B) of the Act. The requested review will normally cover only those companies specifically named. See 19 CFR 351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which a review was not requested, duties must be assessed at the cash deposit rate, and cash deposits must continue to be collected, at the rate previously ordered. As such, the countervailing duty cash deposit rate applicable to a company can no longer change, except pursuant to a request for a review of that company. See Federal-Mogul Corporation and The Torrington Company v. United States, 822 F. Supp. 782 (CIT 1993) and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993). Therefore, the cash deposit rates for all companies except those covered by this review will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for non-reviewed companies at the most recent company-specific or country-wide rate applicable to the company. Accordingly, the cash deposit rates that will be applied to non-reviewed companies covered by this order will be the rate for that company established in the most recently completed segment of this administrative proceeding under the Act, as amended by the URAA. If such a review has not been conducted, the rate established in the most recently completed administrative proceeding conducted pursuant to the statutory provisions that were in effect prior to the URAA amendments is applicable. See Certain Welded Carbon Steel Pipe and Tube Products from Turkey; Final Results of Countervailing Duty Administrative Review, 53 FR 9791 (March 25, 1988). These rates shall apply to all non-reviewed companies until a review is requested. In addition, for the period January 1, 1998 through December 31, 1998, the assessment rates applicable to all non-reviewed companies covered by this order are the cash deposit rates in effect at the time of entry.

Public Comment

Pursuant to 19 CFR 351.224(b), the Department will disclose to parties to the proceeding any calculations performed in connection with these preliminary results within five days after the date of publication of this notice. Pursuant to 19 CFR 351.309, interested parties may submit written comments in response to these preliminary results. Case briefs must be submitted within 30 days after the date of publication of this notice, and rebuttal briefs, limited to arguments raised in case briefs, must be submitted no later than five days after the time limit for filing case briefs. Parties who submit argument in this proceeding are requested to submit with the argument: (1) A statement of the issues, and (2) a brief summary of the argument. Case and rebuttal briefs must be served on interested parties in accordance with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310, within 30 days of the date of publication of this notice, interested parties may request a public hearing on arguments to be raised in the case and rebuttal briefs. Unless the Secretary specifies otherwise, the hearing, if requested, will be held two days after the date for submission of rebuttal briefs. The Department will publish the final results of this administrative review, including the results of its analysis of issues raised in any case or rebuttal brief or at a hearing.

This notice serves as a preliminary reminder to importers of their responsibility to file a certificate regarding the reimbursement of countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary's presumption that reimbursement of countervailing duties occurred and the subsequent assessment of double countervailing duties.

This administrative review is issued and published in accordance with section 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1) and 19 U.S.C. 1677f(i)(1)).